Deviation Leads to Aggravation

Perfectly Pointless

One cannot walk a long distance down a Kigali sidewalk without running into yellow jersey-clad young men hocking plastic cards containing codes with which to refill a mobile phone’s airtime. I’ve read elsewhere that the business can be lucrative, but whatever the economics before, they’re now a little less attractive:

MTN Rwanda airtime distributors and vendors have since last week hiked airtime voucher cards citing increment in prices at which they purchase the cards from the company.

(…)

“The management of MTN wishes to categorically state that there has been no increase in their tariffs,” said Andrew Rugege, the company’s Chief Operations Officer.

However, in a mini survey conducted by Business Times vendors and distributors decried MTN’s position, saying that the company is the root cause of the problem following an increase in wholesale prices at which they purchase the cards from the cards [sic–they mean “the company”].

“We are expected to sell the airtime at the old price yet the wholesale price has been increased this is not practical,” a distributor at Kacyiru who preferred anonymity for the interest of his business said.

In the Econ 101 model of perfect competition, sellers are price takers. In other words, the market is so competitive that for a seller the price is given–any attempt to charge higher than the market price will quickly send buyers to competitors. When facing an increase in costs, therefore, a seller must swallow them despite his natural desire to pass on the plate. If he can’t stomach them, then he’s out of business.

The phone card business seems to exhibit many of the properties of the perfect competition model: each card is the same as the next, barriers to entry are small, there are many buyers and sellers, and since the “market price” is printed clearly on each card, sellers have no information advantage with which to dupe buyers. Regrettably for the card sellers, what this all means is that their increased wholesale cost is relevant only to them and not to their customers, and any attempt to charge a higher price is ultimately doomed.